It's unclear when the phone will launch, but Efrati and Lessin say it will likely be sold directly through Amazon's website. Amazon will also reportedly give away the phone for free even if you don't sign a contract with your wireless carrier.

So how will Amazon make money on a free smartphone? That's still not clear, but Efrati and Lessin hint that customers may be required to sign up for an Amazon Prime account when they get the phone. Amazon Prime costs $79 per year, and it gives you free two-day shipping on several items and access to thousands of streaming TV shows and movies through Amazon Instant.

But Lessin and Efrati still hedge a bit in their report. At least one source tells them Amazon may not be able to pull off a free smartphone because it would require special deals with hardware suppliers.